Sunday, 21 February 2010

New rules to curb property speculation

Pay stamp duty if you ‘flip’ property; bank loans capped at 80%

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Guanyu 道 said...

New rules to curb property speculation

Pay stamp duty if you ‘flip’ property; bank loans capped at 80%

By Joyce Teo, Property Correspondent
20 February 2010

Tougher rules on bank loans and measures to rein in speculators take effect today, as the Government steps up moves to cool the sizzling property market.

First, anyone who sells a property within a year of buying it will have to pay stamp duty of around 3 per cent. That means from today, if you buy a home and sell it at $500,000 within 12 months, you will have to fork out $9,600 in stamp duty. This is on top of the stamp duty you had to pay on the purchase.

Second, lending institutions will now be allowed to lend only up to 80 per cent of the purchase price, not 90 per cent. Buyers will have to come up with at least 20 per cent themselves.

Housing Board loans are not affected by this change in what is called the loan-to-value (LTV) limit.

The sellers’ stamp duty will hit short-term speculators, observers said, while the change in the bank loan limit is likely to weed out marginalised buyers.

The measures will affect only a limited number of buyers but experts feel they could have a psychological effect on the market. There is also concern that tougher steps are in the pipeline.

In its surprise announcement yesterday evening, the Government made clear why it was acting: ‘There is a risk that the market could overheat in the next few months, fuelled by low global interest rates and positive sentiments associated with the economic recovery.’

The joint statement from the National Development and Finance ministries and the Monetary Authority of Singapore said: ‘Any excessive exuberance will make the property market vulnerable to the continuing risks in the global economy.’

If the market were to correct, property buyers and speculators could face capital losses, it added.

The Government also pointed to the sharp spike in sales of new private homes last month and rising prices.

It said that prices rose sharply in the second half of last year and at a faster rate than in previous rebounds. Mortgage lending is also up, hence its ‘calibrated measures now to... pre-empt a property bubble from forming’.

It added that it ‘prefers to take small steps early, rather than be forced to impose more drastic measures after a bubble has formed’.

The Government, which introduced market-cooling measures last September, also said that there is adequate supply and it will inject more sites on to its land sales list this year if needed.

Cushman & Wakefield Singapore managing director Donald Han said: ‘If the Government can come out with something so fast and without warning, it means they can do something faster and more painful if prices continue to rise rapidly. Investors won’t like it.’

Credo Real Estate managing director Karamjit Singh said the measures introduced last September and these new moves ‘seem to be focused on preventing problems that aren’t here just yet’.

But he added: ‘The question that may unnerve developers and investors is, what’s next?’

The Real Estate Developers’ Association of Singapore did not think the sellers’ stamp duty would have an adverse impact on property market activity.

The reduced mortgage cap was also unlikely to have a significant impact on genuine buyers and investors, it said.

Under 10 per cent of home loans cover more than 80 per cent of the property’s valuation, but there are signs that more buyers are getting loans close to the maximum allowed.

OCBC chief executive David Conner told The Straits Times: ‘The banks have been pretty disciplined... because we’ve to put that much more capital against a 90 per cent loan than for an 80 per cent loan, the pricing has been significantly higher... and customers have declined to take that 90 per cent loan.’

PropNex chief executive Mohamed Ismail did not think the new measures would kill the market, but expected a knee-jerk reaction. ‘It may dampen speculators’ buying interest... in the next few months,’ he said.